Despite its recent passage by the CFPB, it looks like the rule banning mandatory arbitration in financial contracts is facing yet another obstacle — this one from the banks’ main regulator, the Comptroller of the Currency.
On Monday, acting Comptroller Keith Noreika asked CFPB Director Richard Cordray to halt the rule until he can verify the data behind it and make sure banks are not put at risk by the rule. There has apparently been a fairly intense correspondence over the issue — according to Wall Street Journal reports, Noreika has written Cordray at least three times since the CFPB announced its arbitration rule last Monday.
“The OCC should be granted the opportunity to conduct an independent review of the CFPB data to determine the safety and soundness implications of the Final Rule,” Mr. Noreika wrote.
The CFPB has received the request and is reviewing it, according to spokesman David Mayorga.
Mr. Noreika’s specific concern is that the new law will throw open the floodgates on lawsuits that could harm a bank’s long-term reputation and performance — which, in turn, could push banking costs up for customers who use said banks.
Cordray has thus far noted that he was “surprised” by the OCC’s letter.
“At no time during the (two-year process of preparing the rule) did anyone from the OCC express any suggestion that the rule that was under development could threaten the safety and soundness of the banking system,” Mr. Cordray said in the July 12 letter.
Mr. Noreika responded that Cordray and the CFPB have been ignoring requests for data on the rule — despite “prior telephonic and in-person assurances that we would have access.”
This dust-up between financial regulators has made the hazy fate of the controversial rule change even hazier. Senate Republicans, for example, may attempt to overturn the arbitration rule as passed using the Congressional Review Act — and House Republicans are looking into whether they could hold Mr. Cordray in contempt for not complying with information requests.
The rule is scheduled to become binding in March 2018 – Cordray’s term runs through July of next year.